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May 13, 2011    

South Korea holds interest rates despite rising inflation

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by Kay Murchie
South Korea holds interest rates despite rising inflation

South Korea’s central bank has today elected to hold interest rates for the second consecutive month despite rising inflation.

The move surprised analysts who had forecast a 0.25% rise.

The latest figures from Statistics Korea showed the consumer price index hit 4.2% in April on an annual basis.

The rate is higher than the central bank’s 2%-4% target and this, together with strong economic growth, was expected to lead to further interest rate hikes.

South Korea, which is Asia’s fourth largest economy, experienced growth of 4.2% in the first quarter on an annual basis.

The economy grew by 1.4% in the January to March quarter from the previous three months – the fastest rate in nine months.

The better than expected growth was attributed to rising exports and an increase in domestic spending.

In the meantime, inflationary pressures are rife in Asia and many central banks have opted to hike interest rates in an attempt to combat rising prices.

In recent months, central banks in China, Indonesia, Vietnam, Thailand and India have all increased interest rates.

Analysts expect inflation to stay above 4% for some time and are forecasting a further rate rise next month.

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